Thank Goodness for CISCO's (CSCO) Earnings
If the U.S. economy was growing at a stronger pace, if there wasn’t a lingering fear that financial institutions are still levered to the hilt (like MF Global and its insane 40-to-1 leverage), we might actually be able to brush off these European debt issues.
But growth in the U.S. does kinda stink right now. And sadly, we do have know-it-all egomaniacs like John Corzine taking on staggering leverage at firms like MF Global. It boggles the mind to think that after the financial crisis, a regulator can still sign off on this degree of leverage, but that’s apparently what happened with MF Global.
So, thank goodness we got a great earnings report from Cisco (Nasdaq:CSCO). People don’t think much about Cisco as a bellwether anymore, not since it started missing earnings expectations and admitting that it had some underperforming divisions.
Cisco sells mostly networking equipment to corporations. Because of that, Cisco always has a firm grasp on corporate spending plans. Needless to say, corporate spending has been a bit lax the last couple of years.
I’ve always considered Cisco CEO John Chambers among the best CEOs ever. He’s great at managing earnings, and he always tells it like it is. Plus, his economic forecasts are always dead on.
When Chambers says the future is murky, the market sells off. So when Chambers says that orders for Cisco’s Americas division grew 12 percent (which is in line with the company’s other geographic regions), it’s important.
My $100K Portfolio readers know my feelings on Cisco. I’ve been in the stock for a couple years, and bought more when the stock was at its lows. That’s because I trust John Chambers as much as any CEO in the business. (The company’s $44 billion in cash doesn’t hurt either).
Strip out that cash, and Cisco is trading basically at sales. That means the 12-13 percent revenue growth can translate directly to stock price appreciation, without expanding the valuation multiples.
And if Cisco starts to improve revenues or margins, well, expect to see some of those valuation multiples expand.
It may only last a day or two, but Chambers seems to have refocused investors on earnings and the U.S. economy. Thanks goodness, because I am really tired of talking about Greece and what a lunatic Silvio Berlusconi is. He’s known about Italy’s debt for two years and has done virtually nothing about it.
Oil Prices Stay Strong
New unemployment claims came in better than expected. 390K isn’t good, of course. But it could be worse. I continue to think we’ll see a good Nonfarm Payrolls sometime soon.
Even yesterday, when stocks were down a lot, and it looked like we were setting up for a big, multi-day move lower, oil prices stayed strong. I will continue to say that oil is the best indicator for the market these days.
Of course, there is the Iran nuclear situation, which may be adding some fear premium to oil prices. But the economic growth story is also represented in the recent run for oil.
Today may be a good day to pick up some oil shares, as oil stocks fell with the market yesterday, even though oil prices remained solid.
I know there are headwinds, and the potential for Europe’s debt problems to spread even further and undermine the European Union as a whole. Still, I think we see stocks climb the proverbial “wall of worry” and give us the usual end-of-year rally.
*****Write me anytime: dailyprofit@wyattresearch.com
Until tomorrow,
Ian Wyatt
Editor, Daily Profit
